Omaha Economy Running Like a Deere?

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Don’t kid yourself Omaha, for all the hype about tech jobs and the evolution of youth culture in our fine hamlet, we are seriously dependent on the farm economy. And the trajectory of the commodities markets should have us looking over our shoulders.

John-Deere-9R

Below is a chart showing the six month performance of John Deere, September corn futures, and September cattle futures. Even if its hard to see this chart I copied from Yahoo! Finance (damn screenshot button), the trend is easy to identify.

Farm commodity prices are dropping. That means fewer trips to Omaha stores for back-to-school shopping, fewer trucks purchased at local dealers, a drop in irrigation system orders at Valmont and Lindsay, fewer combines rolling off the assembly lines at Claas, and a pull-back in rural lending.

Deere

Back in January, some of the warning signs emerged when Marubeni took a massive writedown on its purchase of Omaha commodities firm Gavilon. Although the writedown included crude oil assets, the entire amount approached $1 billion.

Union Pacific has made moves to lay off 200 Omaha managers due to declines in coal shipments and oil transportation. The rumors swirling around the future of ConAgra haven’t been positive.

irrigation

I recall a lunch I was invited to at a major regional bank back in 2010. The founder sang the praises of the farm economy and how important it had been for Omaha. The local economy had fared much better than most during the 2008 collapse.

Could the reverse become true? Rural banks could face headwinds and land prices could decline sharply. Indeed, Fed Governor Esther George argued that farm land prices had reached a bubble in 2013.

If Omaha is a big city now, it has to play by big city rules: the world economy does impact the prospects for local growth.